The soaring cost of childcare in the UK is revealed in new figures today, suggesting nurseries will raise fees by £1,000 this year.
A survey of 1,156 providers by the Early Years Alliance found nine out of 10 expect to increase fees, typically in April, and by an average of 8% – higher than in previous years.
UK childcare costs are already among the most expensive in the world, with full-time fees for a child under two at nursery reaching an average £269 a week last year – or just under £14,000 annually.
An 8% rise would take that to more than £15,000.
Three and four-year-olds in England attending a nursery or childminder are eligible for either 15 or 30 free hours a week depending on whether their parents work, so their costs are a lot lower.
There are different schemes in Wales and Scotland.
But the concern is that by this stage many parents – particularly mothers – have felt forced to drop out of work or cut their hours.
Tory MPs have been pressing the chancellor to take measures to make childcare more affordable in the March budget in order to reduce pressure on families, and enable more women to re-enter the workforce.
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But an option to extend free hours to all two-year-olds is understood to have been ruled out.
Most nurseries and childminders surveyed – 87% – said the money they get from the government does not cover their costs to provide the “free” hours – leaving them out of pocket.
More than half of providers (51%) said they had operated at a loss last year. A handful said they were looking at fee increases of as much as 25%.
Becky Burdaky, 26, from Wythenshawe, Greater Manchester, told Sky News she had taken the “daunting” decision to leave her job in sales after having her second child, Bobby, last year.
Her daughter Harriet, aged three, goes to pre-school near their home, but the family found the costs they would face for their baby son beyond their reach.
She will stay at home and they will live on the wages of her partner Steve, an electrician.
‘Not asking other people to pay for my kids’
Becky said: “When we looked into the fees it was £70 a day – it would have been all of my wage. With Harriet it was about £54, so that’s a huge difference.
“And if he was home poorly, I wouldn’t get paid but I’d still have to pay his fee. Once we sat down and worked it out I would have been paying to go to work.
“I never envisaged myself being a stay-at-home mum, you know just cooking and cleaning and bringing up children, as I’ve always worked.
Image: Becky says she could be starting from the bottom again when she returns to work
“It’s our decision to have children – I’m not asking other people to pay for my children. And I definitely don’t want people’s taxes to go up because of it.
“But I think slightly subsidising the cost of fees so it’s affordable for working parents means we can work and contribute.
“You don’t know what it’s going to be like when you return to work, you’re starting from the bottom.”
The campaign group Pregnant Then Screwed surveyed 27,000 parents last year and found nearly two thirds paid more for childcare than their rent or mortgage.
Although childcare costs have risen significantly in recent years, many providers are struggling to stay in business – with 5,400 closing their doors in the year to August 2022.
Fees for the youngest children, aged under three, are often used to keep the nurseries in business, and the rising cost of living means parents are cutting back.
What support is available?
Tax free childcare [all ages] for every £8 you pay in, the government put in £2
15 free hours for two-year-olds in England who are disabled or on certain benefits
15 free hours for all three and four-year-olds up to 38 weeks a year [10 in Wales]
30 free hours for three and four-year-olds with working parents for 38 weeks a year in England and Scotland [48 weeks in Wales]
Support for those on Universal Credit up to a maximum of £646 per child or £1108 for two
‘I’ve put my savings in to cover wages’
Delia Morris is the owner of Morris Minors pre-school in Croxley Green, Hertfordshire, where children used to start aged two but are now increasingly starting at three.
She is paid £5.41 an hour by the local authority for their free hours, but says providing it costs her around £7.
“Children come in later, when they are funded,” she said.
“That’s had a huge impact. I did raise my fees a very small amount this year but it doesn’t cover it because we only have one or two children doing a couple of sessions a week [that parents pay for].
“I’ve had to put my own savings in to cover the wages last summer, and the staff had to drop a session.”
As to what the government should do, she said: “They have to put money in. It’s difficult to say, but I have to be realistic that if I can’t make ends meet I will have to close and that’s it.”
Image: Delia Morris says the government should provide extra funding for childcare
Neil Leitch, chief executive of the Early Years Alliance, said the organisation had closed half of the 132 nurseries it operated in the last four years.
“They are exclusively in areas of deprivation, which seems to fly in the face of any levelling up agenda. These are families and children who would benefit most from support and care,” he said.
According to the OECD, the UK tops the table for the proportion of a mother’s income taken up by childcare costs – based on two children in full-time care.
‘The gender pay gap just explodes’
Christine Farquharson, education economist at the Institute for Fiscal Studies, said childcare costs for two-year-olds have risen twice as fast as inflation in the past decade – with a lasting effect on women’s pay.
“We ended up in a situation where the youngest children have the highest prices they’re ever going to pay, with the least access to government support,” she said.
“And it’s coming at this critical moment where parents are making decisions about whether or not to go back to work after they’ve been on parental leave.
“When mothers – and it is mostly mothers – make that choice to step back from the labour market it’s not just those few years. The gender pay gap just explodes and literally takes decades to come back to anything approaching the situation before they became parents.”
Proposals, championed by Liz Truss, to increase the ratio of children looked after by each adult, have attracted opposition from nurseries and parents.
But Tory MPs are pressing the government to help parents with the cost of childcare by reducing business rates for nurseries or extending free hours to two-year-olds.
Robin Walker, chair of the education select committee, said some of the existing schemes are not working effectively – such as tax-free childcare – for which uptake is only around 40%.
Universal Credit claimants are also eligible to have up to 85% of their childcare costs funded but are put off by having to make upfront payments.
“There is money there that isn’t being used,” he said. “Upfront payment for Universal Credit and tax-free childcare are putting a lot of parents off using them at all.
“The government is already spending more than any previous government has in this space, but other countries in Europe are spending more particularly in the 0-2 age bracket.
“If we were to make the case for more investment it would unlock those opportunities for people to continue in the workplace and stimulate children in the early years.”
If they win power, Labour have promised an expansion of childcare from the end of maternity leave until the start of primary school.
Shadow education secretary Bridget Philipson told Sky News this would be a “key battleground issue” at the next election.
A Department for Education spokesperson said:“We recognise that families and early years providers across the country are facing financial pressures and we are currently looking into options to improve the cost, flexibility, and availability of childcare.
“We have spent more than £20bn over the past five years to support families with the cost of childcare and the number of places available in England has remained stable since 2015, with thousands of parents benefitting from this.”
Two chairs of FTSE-100 companies are vying to succeed Adam Crozier at the top of Whitbread, the London-listed group behind the Premier Inn hotel chain.
Sky News has learnt that Christine Hodgson, who chairs water company Severn Trent, and Andrew Martin, chair of the testing and inspection group Intertek, are the leading contenders for the Whitbread job.
Mr Crozier, who has chaired the leisure group since 2018, is expected to step down later this year.
The search, which has been taking place for several months, is expected to conclude in the coming weeks, according to one City source.
Ms Hodgson has some experience of the leisure industry, having served on the board of Ladbrokes Coral Group until 2017, while Mr Martin was a senior executive at the contract caterer Compass Group and finance chief at the travel agent First Choice Holidays.
Under Mr Crozier’s stewardship, Whitbread has been radically reshaped, selling its Costa Coffee subsidiary to The Coca-Cola Company in 2019 for nearly £4bn.
The company has also seen off an activist campaign spearheaded by Elliott Advisers, while Mr Crozier orchestrated the appointment of Dominic Paul, its chief executive, following Alison Brittain’s retirement.
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It said last year that it sees potential to grow the network from 86,000 UK bedrooms to 125,000 over the next decade or so.
Mr Crozier is one of Britain’s most seasoned boardroom figures, and now chairs BT Group and Kantar, the market research and data business backed by Bain Capital and WPP Group.
He previously ran the Football Association, ITV and – in between – Royal Mail Group.
On Friday, shares in Whitbread closed at £25.41, giving the company a market capitalisation of about £4.5bn.
The bosses of four of Britain’s biggest banks are secretly urging the chancellor to ditch the most significant regulatory change imposed after the 2008 financial crisis, warning her its continued imposition is inhibiting UK economic growth.
Sky News has obtained an explosive letter sent this week by the chief executives of HSBC Holdings, Lloyds Banking Group, NatWest Group and Santander UK in which they argue that bank ring-fencing “is not only a drag on banks’ ability to support business and the economy, but is now redundant”.
The CEOs’ letter represents an unprecedented intervention by most of the UK’s major lenders to abolish a reform which cost them billions of pounds to implement and which was designed to make the banking system safer by separating groups’ high street retail operations from their riskier wholesale and investment banking activities.
Their request to Rachel Reeves, the chancellor, to abandon ring-fencing 15 years after it was conceived will be seen as a direct challenge to the government to take drastic action to support the economy during a period when it is forcing economic regulators to scrap red tape.
It will, however, ignite controversy among those who believe that ditching the UK’s most radical post-crisis reform risks exacerbating the consequences of any future banking industry meltdown.
In their letter to the chancellor, the quartet of bank chiefs told Ms Reeves that: “With global economic headwinds, it is crucial that, in support of its Industrial Strategy, the government’s Financial Services Growth and Competitiveness Strategy removes unnecessary constraints on the ability of UK banks to support businesses across the economy and sends the clearest possible signal to investors in the UK of your commitment to reform.
“While we welcomed the recent technical adjustments to the ring-fencing regime, we believe it is now imperative to go further.
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“Removing the ring-fencing regime is, we believe, among the most significant steps the government could take to ensure the prudential framework maximises the banking sector’s ability to support UK businesses and promote economic growth.”
Work on the letter is said to have been led by HSBC, whose new chief executive, Georges Elhedery, is among the signatories.
His counterparts at Lloyds, Charlie Nunn; NatWest’s Paul Thwaite; and Mike Regnier, who runs Santander UK, also signed it.
While Mr Thwaite in particular has been public in questioning the continued need for ring-fencing, the letter – sent on Tuesday – is the first time that such a collective argument has been put so forcefully.
The only notable absentee from the signatories is CS Venkatakrishnan, the Barclays chief executive, although he has publicly said in the past that ring-fencing is not a major financial headache for his bank.
Other industry executives have expressed scepticism about that stance given that ring-fencing’s origination was largely viewed as being an attempt to solve the conundrum posed by Barclays’ vast investment banking operations.
The introduction of ring-fencing forced UK-based lenders with a deposit base of at least £25bn to segregate their retail and investment banking arms, supposedly making them easier to manage in the event that one part of the business faced insolvency.
Banks spent billions of pounds designing and setting up their ring-fenced entities, with separate boards of directors appointed to each division.
More recently, the Treasury has moved to increase the deposit threshold from £25bn to £35bn, amid pressure from a number of faster-growing banks.
Sam Woods, the current chief executive of the main banking regulator, the Prudential Regulation Authority, was involved in formulating proposals published by the Sir John Vickers-led Independent Commission on Banking in 2011.
Legislation to establish ring-fencing was passed in the Financial Services Reform (Banking) Act 2013, and the regime came into effect in 2019.
In addition to ring-fencing, banks were forced to substantially increase the amount and quality of capital they held as a risk buffer, while they were also instructed to create so-called ‘living wills’ in the event that they ran into financial trouble.
The chancellor has repeatedly spoken of the need to regulate for growth rather than risk – a phrase the four banks hope will now persuade her to abandon ring-fencing.
Britain is the only major economy to have adopted such an approach to regulating its banking industry – a fact which the four bank chiefs say is now undermining UK competitiveness.
“Ring-fencing imposes significant and often overlooked costs on businesses, including SMEs, by exposing them to banking constraints not experienced by their international competitors, making it harder for them to scale and compete,” the letter said.
“Lending decisions and pricing are distorted as the considerable liquidity trapped inside the ring-fence can only be used for limited purposes.
“Corporate customers whose financial needs become more complex as they grow larger, more sophisticated, or engage in international trade, are adversely affected given the limits on services ring-fenced banks can provide.
“Removing ring-fencing would eliminate these cliff-edge effects and allow firms to obtain the full suite of products and services from a single bank, reducing administrative costs”.
In recent months, doubts have resurfaced about the commitment of Spanish banking giant Santander to its UK operations amid complaints about the costs of regulation and supervision.
The UK’s fifth-largest high street lender held tentative conversations about a sale to either Barclays or NatWest, although they did not progress to a formal stage.
HSBC, meanwhile, is particularly restless about the impact of ring-fencing on its business, given its sprawling international footprint.
“There has been a material decline in UK wholesale banking since ring-fencing was introduced, to the detriment of British businesses and the perception of the UK as an internationally orientated economy with a global financial centre,” the letter said.
“The regime causes capital inefficiencies and traps liquidity, preventing it from being deployed efficiently across Group entities.”
The four bosses called on Ms Reeves to use this summer’s Mansion House dinner – the City’s annual set-piece event – to deliver “a clear statement of intent…to abolish ring-fencing during this Parliament”.
Doing so, they argued, would “demonstrate the government’s determination to do what it takes to promote growth and send the strongest possible signal to investors of your commitment to the City and to strengthen the UK’s position as a leading international financial centre”.
The Post Office will next week unveil a £1.75bn deal with dozens of banks which will allow their customers to continue using Britain’s biggest retail network.
Sky News has learnt the next Post Office banking framework will be launched next Wednesday, with an agreement that will deliver an additional £500m to the government-owned company.
Banking industry sources said on Friday the deal would be worth roughly £350m annually to the Post Office – an uplift from the existing £250m-a-year deal, which expires at the end of the year.
The sources added that in return for the additional payments, the Post Office would make a range of commitments to improving the service it provides to banks’ customers who use its branches.
Banks which participate in the arrangements include Barclays, HSBC, Lloyds Banking Group, NatWest Group and Santander UK.
Under the Banking Framework Agreement, the 30 banks and mutuals’ customers can access the Post Office’s 11,500 branches for a range of services, including depositing and withdrawing cash.
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The service is particularly valuable to those who still rely on physical cash after a decade in which well over 6,000 bank branches have been closed across Britain.
In 2023, more than £10bn worth of cash was withdrawn over the counter and £29bn in cash was deposited over the counter, the Post Office said last year.
A new, longer-term deal with the banks comes at a critical time for the Post Office, which is trying to secure government funding to bolster the pay of thousands of sub-postmasters.
Reliant on an annual government subsidy, the reputation of the network’s previous management team was left in tatters by the Horizon IT scandal and the wrongful conviction of hundreds of sub-postmasters.
A Post Office spokesperson declined to comment ahead of next week’s announcement.